Despite growing calls for a bitcoin rally, spot market participation is dwindling, leaving the market vulnerable to erratic price movements. The daily trading volume of bitcoin has recently dropped below $8 billion, according to data from Glassnode, marking the lowest level since October 2023 when the cryptocurrency was valued at less than $40,000. This decline in volume, which has been ongoing since reaching highs above $25 billion in early February, often coincides with reduced market depth and increased sensitivity to changes in market flow. Market depth, a measure of liquidity that assesses the ability of the market to absorb large orders at stable prices, is typically evaluated by examining buy and sell orders within 2% of the current price.
When market depth decreases, it means that a few large orders can significantly impact prices, potentially leading to heightened market volatility. However, options traders do not seem to be accounting for this scenario at present. The Volmex BVIV index, which measures the expected 30-day price swings of bitcoin, has fallen to three-month lows below an annualized 42%.
This suggests that traders are positioned for a calm market rather than anticipating turmoil. Notably, the Federal Reserve is set to announce interest rates later today, with the focus on the policy statement's comments regarding energy market disruptions and rising gas prices.
A hawkish statement expressing concerns over growth and inflation risks could lead to a prolonged pause in rate reductions and potentially even rate increases, capping gains in risk assets. Analysts at Marex noted that 'bitcoin is sitting around $77,000 and trading like a market that does not want to commit ahead of the Fed. The tape is calm on the surface, but it is not relaxed. Positioning is cautious, liquidity is thinner, and the next impulse is more likely to come from macro than anything crypto-native.' They also highlighted the impact of energy politics, stating that 'if energy becomes less predictable, risk assets stay headline-sensitive,' following the UAE's decision to leave OPEC and OPEC+.
Bitcoin recently traded near $77,800, up over 1% in 24 hours, with other cryptocurrencies such as ether, solana, and XRP experiencing similar gains. The CoinDesk Memecoin Index led the market higher with 3% gains, followed by the Computing Select Index, which rose 2.7%.
In traditional markets, the Dollar Index remains below 100, lacking bullish momentum, while yields on the 10- and two-year U.S. Treasury notes continue to rise slowly.